| Solvay Specialities India Private Limited | ||||
| Rating continues on 'Watch Negative' | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings’ rating on the long-term bank facilities of Solvay Specialities India Private Limited (SSIPL) continues on 'Rating Watch with Negative Implications'
The rating remains on watch as further clarity on the demerger of parent Solvay S.A. is still awaited. The ratings were placed on watch negative on March 28, 2022. The rating action was on the back of announcement made by the current parent entity, Solvay S.A, on March 15, 2022, that it is reviewing plans to split into two independent publicly traded companies as follows:
Pursuant to the aforementioned announcement, S&P changed the rating outlook of the current parent i.e Solvay S.A (rated S&P BBB/A-2) to “Negative” from “Stable”. The negative outlook reflects S&P’s view that after the demerger, the rating of Solvay (EssentialCo) could be lowered owing to weaker business risk profile if the same is not offset by stronger credit metrics. As per S&P, Solvay has not provided details on its capital structure after the split. It might be noted that the current rating action by S&P reflects the likely action on rating of EssentialCo.
Business risk profile of SpecialtyCo is also expected to moderate due to reduction in diversification and increase in revenue concentration. SpecialtyCo's business would include exposure to cyclicality in some end markets, such as auto, aerospace, and construction. Furthermore, SpecialtyCo will have somewhat higher concentration than peers in the auto and aerospace sectors, which could increase profit volatility. Also, currently there is no clarity on the likely capital structure of the de-merged entities. In the event the moderation in business risk profile is not offset by stronger credit metrics, the ratings of SpecialtyCo might be lower than the current rating on Solvay S.A. As reflected in the current rating action, this may in turn impact the credit profile of SSIPL as CRISIL Ratings has applied its parent notch-up framework to arrive at the final rating of SSIPL. CRISIL Ratings would resolve the watch once there is adequate clarity on the capital structure and credit profile of SpecialtyCo.
SSIPL’s revenue is estimated to have grown 20% in fiscal 2022 to Rs 1262 crore driven by ramp up in the surfactant division. However operating margin is estimated to have moderated to 6.2% in fiscal 2022 from 11% in fiscal 2021 due to rise in crude-linked raw material prices primarily during the last quarter of fiscal 2022. The Russia-Ukraine conflict, rise in dollar value and increase in freight charges has led to moderation in operating margin. SSIPL is partially able to pass on increase in RM prices with some lag and is expected to maintain around 8-9% over the medium term.
Financial risk profile remains stable with total debt estimated to have reduced to Rs 210 crore in fiscal 2022 from Rs 245 crore in fiscal 2021. Capital structure remains healthy with gearing of 0.4 times. Debt protection metrics remain comfortable with interest coverage of 3.6 times and NCATD of 0.27 times. Interest coverage and NCATD expected to increase to over 7 times and 0.4 times over the medium term.
The rating continues to reflect the strong technological, managerial and financial support from parent, Solvay SA which is expected to continue post the de-merger also. SSIPL is Solvay SA's wholly owned subsidiary and the flagship company of the Solvay group in India. The rating also factors in SSIPL's established position in the ultra-performance polymers business, strong research and development (R&D) prowess and comfortable financial risk profile. These strengths are partially offset by exposure to risk from lower sales to the Solvay group entities, intense competition in the surfactants segment and moderately working capital intensive operations. |
Analytical Approach For arriving at the rating, CRISIL Ratings has applied its parent notch-up framework to factor in support from Solvay SA. |
Key Rating Drivers & Detailed Description Strengths:
SSIPL is strategically important to Solvay group as it is focusing on India as a manufacturing destination and growth market. SSIPL has strong operational linkages with the Solvay group, as more than 50% of revenue in fiscal 2022 came from sales to other Solvay group companies. It is the flagship company of the group in India, and the group uses this entity to distribute its products. It has full access to the technological capability of the parent, while the latter has significant control over SSIPL's management and operations. The parent had infused sizeable equity (Rs 332 crore as on March 31, 2021) in SSIPL and will continue to provide need-based support.
SSIPL has a strong position in the ultra-performance polymers business and strong R&D capability. The company manufactures polyether ether ketones (PEEK) and sulfones, which are used in diverse sectors. The PESU project commissioned in the previous fiscal is expected to drive growth in the medium term, with healthy orders expected in the segment. The plant in Panoli is the group's largest plant globally for manufacturing PEEK. The company houses the group's global R&D centre at Vadodara, Gujarat, focusing on product innovation.
Financial risk profile is comfortable with a strong capital structure reflected in estimated gearing of 0.4x as on March 31, 2022. Debt protection metrics are also comfortable with estimated Interest Coverage at 3.6 times and Net Cash Acrruals to Total Debt (NCATD) at 27% as on March 31, 2022.
Weaknesses:
SSIPL has strong operational linkages with the Solvay group as over 50% of revenue comes from sales to other Solvay group companies. In fiscal 2020, sales to Solvay group's US (United States of America) entity recovered to previous levels after temporary dip in 2019 which affected the performance of SSIPL. Also, the surfactant segment of Rhodia which broke even at operational level in fiscal 2021 is exposed to intense competition in India.
Operations are moderately working capital intensive keeping in line with the nature of the business, as indicated by high gross current assets of over 200 days. However, it is largely mitigated as SSPIL receives credit period of 350-400 days from its group companies which accounts for 40- 50% of its purchases.
Exports contribute around 50% of overall revenue for SSIPL making it susceptible to any fluctuations in forex prices. However, there is natural hedge in the form of imports of around 40-50% which largely mitigates the risk of forex fluctuation. SSIPL is also vulnerable to disruptions in the global supply chain with exports contributing around ~75-80% to the specialty polymer division. Disruptions in global supply chains and logistic issues negatively impacted the specialty polymer division during fiscal 2021. |
Liquidity: Strong Cash and cash equivalents estimated at Rs. 33 crore as on March 31 2022. Liquidity is further augmented by presence of working capital limits of Rs. 240 crore against which average utilization remains between 50-80%. Further, cash accruals expected at over Rs. 100 crore per annum should be sufficient to meet scheduled term debt repayments of Rs. 69 crore and Rs. 34 crore due in fiscal 2023 and fiscal 2024 respectively. |
Rating Sensitivity factors Upward factors
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About the Company SSIPL, incorporated in 2005, is a wholly owned subsidiary of Solvay SA, and manufactures specialty polymers. The plant in Panoli is an integrated facility for manufacturing monomers and polymers. It is the Solvay group's largest plant globally for PEEK polymers. SSIPL also houses the group's global R&D centre in Vadodara. |
About Solvay SA Incorporated in 1863 in Belgium, Solvay SA is an international chemicals company with presence in 61 countries. It is one of the largest chemical companies of Europe. The group reported net sales of EUR 10.1 billion with earnings before interest, tax, depreciation and amortisation (EBIDTA) margin of 23.30% for the year 2021. It has 21,000 + employees across the world, and manufacturing facilities at 98 locations and 21 R&D centres. The group derives 90% of its revenue from the businesses in which it is among the top three global players. |
Key Financial Indicators
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Interchangeable with other fund-based and non-fund based facilities |
| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||
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Criteria Details
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